 "A sign of Alibaba Group is seen at CES (Consumer Electronics Show) Asia 2016 in Shanghai, China")
Alibaba has a fakes problem.
On Wednesday, American trade officials said that they had added Taobao, the Alibaba Group’s sprawling online shopping bazaar in China, to their list of the world’s most notorious markets for counterfeit goods. The addition — an embarrassing setback four years after Alibaba successfully lobbied American officials to drop the platform from the list — comes as the owners of brands increasingly complain about the proliferation of fakes on the company’s sales platforms.
It also comes as Alibaba moves to satisfy increasingly sophisticated Chinese consumers who want higher quality goods — a shift that has also drawn intensifying competition from Alibaba’s rivals.
Alibaba says it has increased efforts to find and eliminate counterfeit goods. In its report on Wednesday, the Office of the United States Trade Representative acknowledged those efforts — but said they were not enough.
Taobao “is an important concern due to the large volume of allegedly counterfeit and pirated goods available and the challenges right holders experience in removing and preventing illicit sales and offers of such goods,” said the agency, citing complaints from brand owners about the proliferation of fakes on Taobao.
Alibaba, which maintains that counterfeit goods are an industrywide problem, called the move “counterproductive” and questioned the motives behind the agency’s decision. In a statement from Michael Evans, the president of Alibaba, the company said the decision “leads us to question whether the USTR. acted based on the actual facts or was influenced by the current political climate” — an apparent reference to the negative language about China that Donald J. Trump espoused during the campaign and as president-elect.
In an email to the group that oversees how Alibaba’s platforms are governed, Daniel Zhang, the company’s chief executive, pushed the group to continue fighting counterfeiters, whom he described as being “like bacteria in the air that we breathe.” But he also compared the American move to trade protectionism and said Alibaba would face similar efforts elsewhere as it expanded abroad.
“It wouldn’t come as a surprise if we encounter other situations similar to that of ‘Notorious Markets’ in the future, where protectionism leads to malicious acts to players in the market,” he wrote in the email, which the company shared publicly.
The decision by the agency, which does not come with any official punishments, will have little practical impact on Alibaba’s main China operations. The company is enjoying rising sales as Chinese consumers shrug off the country’s slowing economic growth and continue their online buying spree. In after-hours trading on Wednesday after the announcement, its shares fell less than 1 percent.
But the listing could complicate the Chinese company’s ambitions to move into other markets. Alibaba has made forays into the United States, Southeast Asia and elsewhere, and it is moving into industries like entertainment that could take it further abroad. The listing is also a blemish for a company that symbolized China’s rising sophistication when it held a landmark initial public offering of stock two years ago in the United States.
The listing represents a stumble in Alibaba’s lobbying efforts in the United States. Four years ago, American officials removed Taobao from the list, citing its efforts to fight fakes. The move came after Alibaba tapped a former official from the trade representative’s office, James Mendenhall, to work on its behalf. Since 2012 it has spent $2.4 million lobbying the American government, according to lobbying data compiled by Opensecrets.org, a website run by the Center for Responsive Politics.
In recent years Alibaba has de-emphasized Taobao, a vast platform where sellers big and small can set up online stores, resembling eBay. Analysts say its growth prospects are limited, and a growing number of Chinese consumers say they want to buy from sources they can better trust.
“The problem is that anybody can open a Taobao shop and sell anything,” said Shaun Rein, founder and managing director of China Market Research Group.
Yu Yang, a 36-year-old information technology engineer in Beijing, said he started using Taobao more than a decade ago. “But I almost stopped completely about three or four years ago,” he said, adding that it had become difficult to tell fake from real basketball sneakers, which he collects.
“Fakes are getting more and more real,” said Mr. Yu, who said he had switched to shopping on JD.com and also buys more when he travels to South Korea or Japan. “Unless you compare a fake with an authentic, it would be almost impossible to tell.”
Alibaba said its core Chinese retail business had 439 million annual active users during the year that ended in September, though it does not break out how many of them are Taobao users. That business makes its money by charging fees to, and providing advertising for, vendors.
Alibaba has tried to steer business to its Tmall platform, which is geared toward larger sellers of higher-end name brands like Nike and Estée Lauder. But that business faces intense competition from JD.com and others that manage their own inventory and act more as curators for finicky customers.
Tmall is the dominant player in the business to consumer segment, as Tmall and its rivals are called, with a little more than half of the market, according to figures from the data firm iResearch. But the data also shows that it has slowly lost market share to others.
Last year, in a warning to Alibaba, the United States Trade Representative also mentioned Tmall as a source of complaints about fakes, though the platform was not mentioned in this year’s list. Alibaba has also defended Tmall’s efforts to fight fakes.
The American government’s move adds to mounting pressure on Alibaba to do something about fakes. Last year, the owner of the Gucci and Yves Saint Laurent brands sued Alibaba in New York federal court, claiming that the company encouraged sales of fakes on its online platforms. In October an industry group, the American Apparel and Footwear Association and others openly called for Alibaba to be added to the government’s notorious markets list, saying its members saw little change despite the company’s efforts to fight fakes.
In May, the International Anticounterfeiting Coalition backed away from a plan to give Alibaba membership in its ranks as part of a united effort to fight fakes, after other members objected and raised questions about financial ties between Alibaba and the group’s leadership. The group defended its leadership but said it had hired an outside firm to review its internal controls.
© 2016 The New York Times News Service
